The President William Ruto administration has been seeking to recover taxes from major institutions and among those taking a hit is the Kenyatta family-owned NCBA Bank.
The Kenya Revenue Authority (KRA) wants the lender to pay Sh900 million in a tax exemption issued during the 2019 CBA-NIC merger.
While the tussle between the lender and the government dates back to 2022, the review of tax exemptions has had foreign investors fleeing the Kenyan market.
For example, in January, currency printing firm De La Rue announced its exit from the Kenyan market due to an unfavorable economic climate.
While announcing its exit, the firm said it was exploring business opportunities with a view of restarting production “if the economic climate permits”.
Then, the taxman was looking to recover historical taxes dating back from 2013. KRA said it discovered through an audit of the business’s filings in 2013 that De La Rue was failing to offset royalties paid to its parent company De La Rue International as an acceptable expense under Section 15(1) of the Income Tax Act.
The Kenyan subsidiary’s profits decreased by 58% to £0.5 million (Sh74 million) in the six months ending in September 2022 from £1.2 million (Sh177.5 million) the year before.
Government bonds have also been underperforming amid a liquidity crunch and investors declining to lend to the State.
Investors have opted instead to invest in the shorter 91-day Treasury bill, which has been oversubscribed by as much as 643%, as they take a wait-and-see approach to the direction of returns in the bond market.
Bond interest rates have varied between 12.9 and 14.4 percent this year, compared to returns of 11.2 to 13.9 percent during the same period last year.
The 91-day T-bill reached double digits at 10.004 percent for the first time since February 2016, up from an average of 7.8 percent in June of the previous year.
Investors bid around Sh25.731 billion against just Sh4 billion on offer, resulting in a 643.29 percent performance rate a week earlier.
Experts have said that the government should review tax exemptions for all institutions and should avoid picking on others.
They have also noted that NCBA’s tax exemption was done in accordance with the law and as such, the review should be undertaken in line with the law.
The review which is currently before the courts, experts say, sets a dangerous precedence.